A BILL TO BE ENTITLED
AN ACT to improve the oversight of state grants to non‑state entities and to increase the accountability of grantees who receive state grants, AS RECOMMENDED BY THE JOINT LEGISLATIVE PROGRAM EVALUATION OVERSIGHT COMMITTEE.
The General Assembly of North Carolina enacts:
SECTION 1.  G.S. 143C‑6‑23 reads as rewritten:
"§ 143C‑6‑23.  State grant funds: administration; oversight and reporting requirements.
(a)	Definitions. – The following definitions apply in this section:
(1)	Grant or grant funds. – State funds disbursed by a State agency to a grantee to carry out a program for a public purpose; however, the terms do not include any payment made by the Medicaid program, the State Health Plan for Teachers and State Employees, or other similar medical programs.
(2)	Grantee. – A non‑State entity that meets any of the conditions listed in this subdivision, but a grantee does not include any non‑State entity subject to the audit and other reporting requirements of the Local Government Commission or a business entity receiving an economic development incentive grant included in the Department of Commerce report required by G.S. 143B‑437.07. The conditions are:
a.	Has its performance measured in relation to whether objectives of a State program are met.
b.	Has responsibility for programmatic decision making.
c.	Is responsible for adherence to applicable State program requirements specified in the award.
d.	In accordance with its agreement, uses the State funds to carry out a program for a public purpose, as opposed to providing goods or services for the benefit of a State entity.
(3)	Subgrantee. – A non‑State entity that meets any of the conditions listed in this subdivision, but a subgrantee does not include any non‑State entity subject to the audit and other reporting requirements of the Local Government Commission or a business entity receiving an economic development incentive grant included in the Department of Commerce report required by G.S. 143B‑437.07. The conditions are:
a.	Has its performance measured in relation to whether objectives of a State program are met.
b.	Has responsibility for programmatic decision making.
c.	Is responsible for adherence to applicable State program requirements specified in the award.
d.	In accordance with its agreement, uses the State funds to carry out a program for a public purpose, as opposed to providing goods or services for the benefit of a State entity.
(b)	Conflict of Interest Policy. – Every grantee shall file with the State agency disbursing funds to the grantee a copy of that grantee's policy addressing conflicts of interest that may arise involving the grantee's management employees and the members of its board of directors or other governing body. The policy shall address situations in which any of these individuals may directly or indirectly benefit, except as the grantee's employees or members of its board or other governing body, from the grantee's disbursing of State funds, and shall include actions to be taken by the grantee or the individual, or both, to avoid conflicts of interest and the appearance of impropriety. The policy shall be filed before the disbursing State agency may disburse the grant funds.
(c)	No Overdue Tax Debts. – Every grantee shall file with the State agency or department disbursing funds to the grantee a written statement completed by that grantee's board of directors or other governing body stating that the grantee does not have any overdue tax debts, as defined by G.S. 105‑243.1, at the federal, State, or local level. The written statement shall be made under oath and shall be filed before the disbursing State agency or department may disburse the grant funds. A person who makes a false statement in violation of this subsection is guilty of a criminal offense punishable as provided by G.S. 143C‑10‑1.
(d)	Office of State Budget Rules Must Require Uniform Administration of State Grants. – The Office of State Budget and Management shall adopt rules to ensure the uniform administration of State grants by all grantor State agencies and grantees or subgrantees. The Office of State Budget and Management shall consult with the Office of the State Auditor and the Attorney General in establishing the rules required by this subsection. The rules shall establish policies and procedures for disbursements of State grants and for State agency oversight, monitoring, and evaluation of grantees and subgrantees. The policies and procedures shall:
(1)	Ensure that the purpose and reporting requirements of each grant are specified to the grantee.
(2)	Ensure that grantees specify the purpose and reporting requirements for grants made to subgrantees.
(2a)	Require each contract that awards a grant to include all of the following:
a.	Concrete, measurable benchmarks against which to measure success. The benchmarks shall address the expected quantifiable outputs and outcomes.
b.	Identification of program performance measures that will be used to compare quantifiable outputs and outcomes against the benchmarks established in contracts pursuant to this subdivision.
c.	For purposes of this subdivision, the term "output" means quantified activities performed by the grantee and the term "outcome" means what happens as a result of the grantee's activities.
(3)	Ensure that State funds are spent in accordance with the purposes for which they were granted.
(4)	Hold the grantees and subgrantees accountable for the legal and appropriate expenditure of grant funds.
(5)	Provide for adequate oversight and monitoring to prevent the misuse of grant funds.
(5a)	Establish the criteria for grant programs from which oversight costs shall be withheld by a State agency pursuant to G.S. 143C‑6‑24.
(5b)	Provide procedures for making the determination that the amount required to be withheld under G.S. 143C‑6‑24 may be reduced.
(5c)	Require that an administering State agency and the Office of Budget and Management provide an accounting of the withheld funds that is separate from other funds used for oversight and monitoring and that the accounting be made available to a grantee or subgrantee upon request.
(6)	Establish mandatory periodic reporting requirements for grantees and subgrantees, including methods of reporting, to provide financial information. The mandatory periodic reporting requirements shall require grantees and subgrantees to file with the State Auditor copies of reports and statements that are filed with State agencies pursuant to this subsection. Compliance with the mandatory periodic reporting requirements of this subdivision shall not require grantees and subgrantees to file with the State Auditor the information described in subsections (b) and (c) of this section.
(6a)	Establish mandatory periodic reporting requirements for grantees and subgrantees, including reporting on benchmarks set out in the contract awarding the grant pursuant to subdivision (2a) of this subsection, by means of performance measures identified in the contract. The State agency overseeing the grant shall review performance reporting on an ongoing basis and shall submit an annual performance report to the Office of State Budget and Management.
(7)	Require grantees and subgrantees to maintain reports, records, and other information to properly account for the expenditure of all grant funds and to make such reports, records, and other information available to the grantor State agency for oversight, monitoring, and evaluation purposes.
(8)	Require grantees and subgrantees to ensure that work papers in the possession of their auditors are available to the State Auditor for the purposes set out in subsection (i) of this section.
(9)	Require grantees to be responsible for managing and monitoring each project, program, or activity supported by grant funds and each subgrantee project, program, or activity supported by grant funds.
(9a)	Require a State agency that oversees a grant program to develop a monitoring plan for that program and to submit the plan and any additional information regarding the plan to the Office of State Budget and Management for review and approval.
(10)	Provide procedures for the suspension of further disbursements or use of grant funds for noncompliance with these rules or other inappropriate use of the funds.
(11)	Provide procedures for use in appropriate circumstances for reinstatement of disbursements that have been suspended for noncompliance with these rules or other inappropriate use of grant funds.
(12)	Provide procedures for the recovery and return to the grantor State agency of unexpended grant funds from a grantee or subgrantee if the grantee or subgrantee is unable to fulfill the purposes of the grant.(e)	Rules Are Subject to the Administrative Procedure Act. – Notwithstanding the provisions of G.S. 150B‑2(8a)b. rules adopted pursuant to subsection (d) of this section are subject to the provisions of Chapter 150B of the General Statutes.
(f)	Suspension and Recovery of Funds for Noncompliance. – The Office of State Budget and Management may take the actions listed in this subsection for noncompliance with the rules adopted pursuant to subsection (d) of this section. If the grant funds are a pass‑through of funds granted by an agency of the United States, then the Office of State Budget and Management must consult with the granting agency of the United States and the State agency that is the recipient of the pass‑through funds prior to taking the actions authorized by this subsection. The authorized actions are as follows:
(1)	With respect to a grantee or a subgrantee, and after consultation with the administering State agency, suspend disbursement of grant funds, prevent further use of grant funds already disbursed, and recover grant funds already disbursed.
(2)	With respect to an administering State agency, and after 90 days notice to give the administering State agency an opportunity to correct the noncompliance, suspend disbursement of grant funds. 
(g)	Audit Oversight. – The State Auditor has audit oversight, with respect to grant funds received by the grantee or subgrantee, pursuant to Article 5A of Chapter 147 of the General Statutes, of every grantee or subgrantee that receives, uses, or expends grant funds. A grantee or subgrantee must, upon request, furnish to the State Auditor for audit all books, records, and other information necessary for the State Auditor to account fully for the use and expenditure of grant funds received by the grantee or subgrantee. The grantee or subgrantee must furnish any additional financial or budgetary information requested by the State Auditor, including audit work papers in the possession of any auditor of a grantee or subgrantee directly related to the use and expenditure of grant funds.
(h)	Noncompliance Reports. – The Office of State Budget and Management shall maintain a list that is publically available of all grantees or subgrantees that failed to comply with this section with respect to grant funds received in the prior fiscal year.
(i)	State Agencies to Submit Grant List to Auditor. – No later than October 1 of each year, each State agency shall submit a list to the State Auditor, in the format prescribed by the State Auditor, of every grantee to which the agency disbursed grant funds in the prior fiscal year. The list shall include the amount disbursed to each grantee and other information as required by the State Auditor to comply with the requirements of this section."
SECTION 2.  Article 6 of Chapter 143C of the General Statutes is amended by adding a new statutory section to read:
"§ 143C‑6‑24.  Withholding of Grant Program Funds for Oversight.
(a)	Mandatory Withholding. – A State agency that oversees a grant program shall withhold two percent (2%) of the amount awarded for the grant program each fiscal year to cover oversight costs for the grant program pursuant to this subsection if the grant program satisfies the criteria established by the Office of State Budget and Management. The administering State agency shall transfer twenty‑five percent (25%) of the amount withheld to the Office of State Budget and Management at the time the grant program funds are disbursed. The Office of State Budget and Management shall use the funds transferred from the administering State agency to cover costs related to statewide oversight of grants to non‑State entities.
(b)	Adjustment. – If an administering State agency or the Office of State Budget and Management believes that the amount withheld under subsection (a) of this section is in excess of the amount the administering State agency requires for oversight, the amount of the withholding may be reduced in accordance with this subsection. If the amount withheld is reduced, the amount transferred to the Office of State Budget and Management shall be reduced proportionately.
(1)	By request. – An administering State agency may submit a written request to the Office of State Budget and Management for a reduction of the amount withheld. The request must set out the oversight responsibilities of the agency with regard to the grant program and the amount by which the agency is requesting the withholding be reduced from the grant program for the fiscal year. The Office of State Budget and Management shall determine whether it is appropriate to allow a reduction of the withholding under this section and, if so, the amount by which the withholding shall be reduced. The Office of State Budget and Management shall notify the State agency in writing of the approval or disapproval of the request and, if approved, the amount by which the withholding shall be reduced.
(2)	Without request. – The Office of State Budget and Management may, without a request by an administering State agency, reduce the amount withheld from a grant program for oversight if it makes a determination that the amount required under subsection (a) of this section is in excess of the amount the administering State agency requires for oversight. The Office of State Budget and Management shall notify the administering State agency in writing of its determination.
(c)	Review. – The Office of State Budget and Management shall review the withholding amounts annually and may make adjustments to the withholding at any time in accordance with subdivision (2) of subsection (b) of this section.
(d)	Limitations. – Funds shall not be withheld under this section if a grant program meets any of the following conditions:
(1)	The program is a pass‑through of funds granted by an agency of the United States, and the terms of the federal grant prohibit the withholding of funds described by this section.
(2)	The program is funded by a direct appropriation of the General Assembly.
SECTION 3.  G.S. 143C‑6‑23(d), as amended by Section 1 of this act, is amended by adding a new subdivision to read:
"(7a)	Require grantees to submit a cash receipts and disbursements report in a format specified by the Office of State Budget and Management within 90 days of the end of the State fiscal year."
SECTION 4.  Sections 2 and 3 of this act become effective July 1, 2014, and apply to grants awarded on or after that date. The remainder of this act becomes effective July 1, 2013.